Concerning the U.S.balance-of-payments statement, throughout the past 30 years
A) the current account balance and the capital account balance have moved in the opposite direction.
B) the current account balance and the capital account balance have moved in the same direction.
C) the official reserve assets of the U.S. government have shrunk to zero.
D) unilateral transfers have shrunk significantly.

Question

Quizplus · Accepted Answer

The balance of payments consists of the current account, the capital account, and the financial account. Typically, if the current account (which includes trade balance, primary income, and secondary income) has a deficit, the capital and financial account (covering investments and financial transactions) will show a surplus, and vice versa, to balance the overall balance of payments. This reflects the economic principle that a country with a current account deficit must be financed by capital inflows from abroad or by running down its reserves. Hence, the current account balance and the capital account balance often move in opposite directions to maintain the balance of payments equilibrium.